Judge: Apple conspired to raise e-book prices

Jul. 10, 2013
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Apple's logo. / Paul Sakuma, AP

by Scott Martin, USA TODAY

by Scott Martin, USA TODAY

SAN FRANCISCO - Apple conspired with five major publishers to illegally raise consumer prices for electronic books in 2010 and will next face a trial to decide how much it owes in damages, a federal judge ruled Wednesday.

The decision was a blow to Apple, which had refused to settle the Justice Department's antitrust lawsuit even after all five publishers negotiated settlements with the government and state attorneys general.

The company said it would appeal the decision. While states are seeking money damages from Apple, the Justice Department wants the court to bar Apple for two years from entering into any similar agreements that let publishers rather than retailers set prices or discriminating against competing e-reader apps.

"This result is a victory for millions of consumers who choose to read books electronically," Assistant Attorney General Bill Baer said in a statement.

Apple shares fell $1.62 to $420.73 in regular trading Wednesday.

The Justice Department claimed Apple forged agreements with the publishers that permitted higher pricing on best sellers and new releases, effectively nudging e-books and best sellers to $12.99 and $14.99, respectively. That helped publishers who were unhappy with Amazon selling e-books for $9.99, a price they thought was too low.

Apple conspired to create an environment that enabled the company and publishers to eliminate all retail price competition for their e-books, Cote said.

Apple denied any wrongdoing.

"Apple did not conspire to fix e-book pricing, and we will continue to fight against these false accusations," Apple spokesman Tom Neumayr said in a statement. "When we introduced the iBookstore in 2010, we gave customers more choice, injecting much-needed innovation and competition into the market, breaking Amazon's monopolistic grip on the publishing industry. We've done nothing wrong, and we will appeal the judge's decision."

Cote's ruling followed a three-week trial that ended June 20. Witnesses included executives from Amazon, the publishers and Apple, including Eddy Cue, a longtime digital-rights dealmaker and a lieutenant of Apple co-founder Steve Jobs, who died in 2011.

Apple backed what's known as an agency model. That positioned publishers, rather than retailers, to set prices when Apple entered the e-books market in 2010 with its iPad and iBookstore. The deal allowed Apple to grab its 30% commission on books and the publishers had to match lower prices of any other retailers, such as Amazon.

Legal experts remained mixed on whether Apple's actions were defensible or ran afoul of antitrust concerns.

"The most explosive thing that may come out of this is the court's imposing ... restrictions on the way Apple operates its e-book and App Store platform. Apple may be forced to open up access," says Bob Kohn, a technology and media attorney.

"Apple has good arguments to raise on appeal. But the new problem Apple faces is that the judge's massive opinion relies so heavily on facts and inferences that an appellate court is unlikely to have room to modify the decision substantially," says Keith Hylton, a professor at Boston University School of Law.

Last year, Apple settled with the European Commission on an antitrust case over e-book pricing without admitting wrongdoing.